PwC

Tax & Legal

    No extension of inheritance tax privilege for repeated transfers to transfers taxable abroad?


    An ECJ advocate general has suggested that the German inheritance tax privilege relieving repeated transfers within the same family need not be extended to previous transfers taxable in another member state.

    The German Inheritance Tax Act includes a provision for partial credit for the tax previously paid on a prior transfer of the same estate during the previous ten years. The credit declines with time and is only available for transfers between spouses or in the direct line. The credit is calculated on the basis of the current transfer, but may not be higher than the proportional amount of the previous charge. Transfers of estates previously taxed abroad are therefore excluded from credit.

    A mother living with her daughter in Austria inherited on the latter’s decease. The transfer was charged to Austrian inheritance tax (since abolished). The mother then moved to Germany and died shortly afterwards, leaving her estate to her German resident son. The latter claimed the privilege based on the legislative intent of avoiding double taxation and cited the free movement of capital when the tax office refused to grant it.

    The ECJ advocate general on the case has suggested the court rule that the free movement of capital is not restricted because the two situations – a previously foreign estate taxed abroad and a home estate taxed at home – are not comparable. Rather, the German legislative intent was to partially relieve a double charge to tax on transfer within the immediate family within a short period of time. However, there was no obligation on Germany to relieve Austrian taxation. Rather, the German relief remained a wholly German matter. However, he goes on to add that, should the court take a different view, the resulting restriction on the freedom of capital movement can be justified on the basis of the coherence of the German tax system, which credits a German tax previously paid by in effect the same taxpayer from a German liability now to be borne.

    The ECJ case reference is C-123/15 Feilen opinion of March 17, 2016.